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EIC Analysis Of Bajaj Auto

The data on national income released in February 2016


by the Central Statistical Organization of the Government of India anticipates real GDP growth
of 7.6% for 201516 (FY2016) up from 7.2% in the previous year.

Bajaj Auto has performed very well. Here are the key financials:
Net sales increased by 5.4% to H 22,253 crore. Total operating income (net sales plus
other
operating income) grew by 5.3% to H 22,967 crore
Operating EBITDA increased by 17.5% to H 5,147 crore. This is the highest in your
Companys history.
At 22.4% of net sales and other operating income, the operating EBITDA margin is, I
believe,
the highest in the industry
Operating profits grew by 17.9% to a record of H 4,839 crore. The operating profit
margin
was 21.1% of net sales plus other operating income also the best in the industry.
Profit before tax (PBT) increased by 31.8% to a record H 5,385 crore.
Profit after tax (PAT) rose by 29.8% to H 3,652 crore, another record for the Company.
Inspite of two dividend payouts in FY2016, surplus cash and cash equivalents as on
31 March 2016 was up by 7.5% to H 9,089 crore

In FY2016, Bajaj Auto sold almost 3.36 million motorcycles in India and abroad. It sold nearly 1.9
million motorcycles in India, which was 7.2% higher than in the previous year, driven by:

a) The Pulsar and the Avenger in the sports or performance segment. For the year, Bajaj Auto
sold 729,304 such bikes and reinforced its dominant leadership position in this segment,
improving its market share from 41% in Q4/FY2015 to 49% in Q4/FY2016.

b) The CT and the Platina in the entry or utility segment. Here, by a combination of pricing and
aggressive marketing of the CT 100 and by creating a niche value proposition for the Platina,
the Company succeeded in selling 865,366 bikes in FY2016 and ended the year with a healthy
market share of 35%. In fact, the entire growth in this segment was monopolized by BAL.

c) The KTM and the Pulsar RS 200 in the niche super-sports segment. The KTM, Indias fastest
growing sports motorcycle brand, increased its sales by 32% between FY2015 and FY2016. And
the new Pulsar RS 200 (RS for Race Sports), introduced in March 2015, has done impressively
with sales of over 2,900 per month. There are nearly 35,000 customers who have bought the RS
200. Our share in this super-sports segment of the market has increased from 35% in FY2015 to
nearly 60% in FY2016.There are nearly 35,000 customers who have bought the RS 200.
Our share in this super-sports segment of the market has increased from 35% in FY2015 to
nearly 60% in FY2016.

Bajaj auto captured major market shares in three segments: the super-sports, the sports and
the entry-level. In February 2016, Bajaj Auto launched the V15, a 150 cc model to create a new,
differentiated and more powerful engine category within the mass commuter segment that is
presently dominated by 100 cc and 125 cc motorcycles. Though early days yet, the Company is
confident that the V15, whose fuel tank assembly contains metal from Indias flagship aircraft
carrier, the INS Vikrant, will occupy a white space where the traditional commuter segment
ends (100 cc to 125 cc) and the sports/performance segment begins (150 cc and above). In
doing so, BAL expects to attract more customers to this newly differentiated segment, create
and grow a premium offering and thus increase our market presence in the commuter
category.

Bajaj Auto ended the FY2016 with a record domestic sale of 254,995 vehicles, up by 8.8% over
the previous year as against an industry growth of 1%. In the domestic three-wheeler passenger
vehicle industry, BAL expanded its market share by 3.3%, from 54.2% in FY2015 to 57.5% in
FY2016. Total three-wheeler sales of the Company, which includes domestic and exports, was
its highest ever, at 534,995 units in FY2016 a growth of 3.1% over the preceding year. In the
aggregate, i.e. domestic sales plus exports, Bajaj Auto accounted for 56.8% of sales with its
relative leadership position having risen from 55.2% in FY2015.
New three-wheeler permits were released during the year in Maharashtra, Delhi, Chandigarh,
Hyderabad, Jaipur, and Kota, which played their roles in growing the Companys sales. The
Company has maintained a strong performance in the petrol and alternate fuel markets, where
it enjoys a dominant market share of 90%. It also maintained its dominance in the small diesel
market with a market share of 65%. Moreover, even in the large diesel category, a segment
where it has a relatively lesser presence, Bajaj Autos market share went up from 18% in
FY2015 to 20% in FY2016.
Bajaj Autos growth performance has been better than the industry in all categories - in petrol
and alternate fuel vehicles, in small diesel vehicles as well as in large diesel vehicles.
In exports, however, the Company registered a drop in sales of 1.7% over the previous year.
Part of this is on account of the impressive export growth of 9.2% in FY2015, which substantially
raised the base. The drop in FY2016 was due to external factors such as economic and
political crises as well as financial and foreign currency constraints in some countries like Egypt
and Nigeria, which are key markets where we sell our three-wheelers.

International Business:
Bajaj Autos international business was somewhat muted in FY2016 for reasons stated
immediately above, it continues to be by far Indias largest exporter of motorcycles and three-
wheelers. It exports to 78 countries and enjoys the No.1 or No.2 position in more than 20 of
them. During FY2016, exports accounted for 43.9% of the Companys net sales. In numbers,
motorcycle exports grew by 4.1%; while three-wheelers exports fell by 1.6%. In US dollars,
revenue from exports fell by 6.9% to USD 1.42 billion in FY2016. Despite this downturn, it is
necessary to mention two noteworthy features of the key export markets. The first is the
growth of Pulsar exports, which has increased from around 226,000 units in FY2014 to 250,000
in FY2015 and then quite sharply to 313,000 units in FY2016. It goes to show that the
Companys offerings in the premium sports category are increasingly attracting consumers
abroad and getting definite traction. The second is that Bajaj Auto still enjoys significant market
shares, and has in fact improved, in important geographies: 24% in markets where it operates
in Latin America, driven by the Pulsar 200NS; and 33% share in the relevant markets of Africa
where the Boxer continues to lead Bajaj auto motorcycle sales.

All Bajaj Autos manufacturing plants (Waluj, Chakan and Pantnagar)


has been the continuous improvements in performance through lean manufacturing, higher
quality, cost reduction, tight and lean supply chains, greater throughput and the introduction of
new products and processes. This journey is termed as Company-wide TPM Implementation,
and has enabled the Company to reduce unit costs, optimize plant capacities, efficiently
introduce new products, and bring about profit enhancing flexibilities in the manufacturing line.
For instance, over the last eight years:
The number of motorcycles produced per person per year has increased from
507 to 804 a productivity growth of 58.5%.
The number of three-wheelers produced per person per annum has risen from
245 to 452 representing a growth of 84.5%.
The value of fixed assets utilized per vehicle produced has reduced from H 2,833 to H
1,810 a reduction of 36.1%.

These improvements have helped to avoid needless investments. As an example, the


productivity improvements in FY2016 alone saved investments worth over H 40 crore. These
are not all. Turnover per employee has risen by 17.3% between FY2013 and FY2016. And the
asset turnover ratio has improved by 11% over the same period. Quality improvements go
hand-in-hand with productivity, which have been carried out through a Company-wide
implementation of the TPM philosophy. Bajaj Autos warranty cost per vehicle has steadily
reduced from H 26 in FY2012 to H 18.70 in FY2016.

In FY2016, Waluj, which is the export hub of Bajaj Auto, produced 1.65 million motorcycles of
which 1.19 million were exported; and 527,000 three-wheelers, of which 280,000 were shipped
abroad. Chakan, which concentrates on manufacturing high-end bikes, produced over 870,000
motorcycles. And Pantnagar manufactured nearly 820,000 motorbikes.

The Japan Institute of Plant Maintenance (JIPM) has awarded the Chakan and Waluj plants with
its Special Award for TPM Achievement; and the Pantnagar plant with the Consistent TPM
Commitment Award. Even more rewarding are the comments from Professor Toyoshiro
Inamura, JIPM Assessor and Professor Emeritus at the Nagoya Institute of Technology. During
the TPM award ceremony he said: Your Vendor Improvement is better than the case in Japan
and will be the best in the world
.